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8 thoughts on “OECD Economic Survey: Ireland”

Unfortunately the short term forecasts on growth and the fiscal outlook look a little dated in the wake of the second quarter National Accounts. Real GDP is forecast to rise by 5% this year, for example, which given an average 7% in H1 looks unlikely. Interesting to note though that the OECD’s estimates for potential growth are under 2% this year and next, so even with their conservative growth forecasts the output gap is over 3% in 2016. Not sure their call for higher property taxes will go down too well.

The data on the income gap and low skills of a significant number shows why per capita standard of living is below the Euro Area average.

There is a large number of graduates but only 50% of the individuals in the 20-30 age group are employed or are seeking work, 20 percentage points lower than in other advanced economies in the European Union.

The survey says about 90,000 persons, i.e. 26% of the registered unemployed, have been without a job for more than 3 years, and “only 51% of single parents were in employment in 2014, compared to an EU15 average of 69%; the latter gap was apparent before the crisis, indicating that it is largely structural.”

The OECD says that “data compiled for this Economic Survey shows that about 43% of tax units remained in the same quintile income groups between 2004 and 2012 (Kennedy et al., 2015). Less mobility occurs at the low and high ends of income distribution (47% and 58% of tax units remained in the lowest and highest quintile groups), while mobility is more frequent in middle income classes (on average 37% of tax units remained in the same quintile group). This is similar to the United States. “

As a student I’m very much worried about my feature. Just because of Irish unemployment rate. It’s over 90,000 people register in unemployment. Then what about the fresh Graduate? It’s seems that it will tough and tougher to get a job.
Government should take a quick action also should give opportunity to rise privet company. Then unemployment rate will lower.

Probably the most striking evidence of profound structural failings and economic policy dysfunction is that the market income gini coefficient is the highest in the OECD (Fig. 1.1, p52) while the disposable income gini is just below the OECD average (Fig. 1.2, p53). The outcome is made even worse for those in the lower income percentiles when one factors in the impact of a cost of living which is probably more than 20% higher than the OCED average – it’s certainly 20% higher than the EU average. Significant unnecessary economic costs are being incurred to facilitate and administer the huge redistribution of income involved – not to mention the opportunities provided to avoid/evade tax contributions, on one side, and to exploit the allocation of welfare transfers, on the other.

What is probably one of the most egregious examples of this policy stupidity – at least of which I’m aware – is the policy determination to ensure gloriously inefficient operation and financing of the parts of the electricity industry in state ownership (so as to fatten up the ESB and to keep its management, staff and unions in the style to which they have become accustomed) which results in excessive and regressive final prices. Social welfare recipients have to be awarded extra transfers to ameliorate the impact of these ultimately state-approved excessive and regressive electricity prices. This is just one example; there are numerous others.

The OECD does, of course, acknowledge that “[i]ncreasing competition reduces monopoly rents, which are a source of income inequality, inefficiency and less inclusive growth” (p37), but, rather than present useful analysis and recommendations, it mentions, and subtly laments, the yet-to-be-enacted Legal Service Bill, refers to the merger of the under-empowered Competition Authority with the Consumer Protection Agency (which in reality is totally ineffective), to the need for a separate conveyancing service and to some limited changes in port handling charges and then suggests the need for the full ownership separation of electricity generation and networks.

The powerful, rent-capturing special interest groups will keep their snouts in the trough, There will be no political or policy pressure to change while Ireland can continue to free-ride on the outcomes of policies pursued by other countries and there is enough largesse to distribute.

Not sure what to make of this slightly odd exchange but it has encouraged a certain crotchetiness in some quarters – is John now regarded in government as Ireland’s official, ministerially appointed, finance contrarian?

“Senator Susan O’Keeffe

How are the views of the Irish Fiscal Advisory Council fed into the budgetary process?

Deputy Michael Noonan

They have a difficult role, first of all, under law. They were brought in informally first and now there’s legislation that underpins their role. But … you could go into great detail defining their role.

Senator Susan O’Keeffe

I’m not asking that.

Deputy Michael Noonan

—–but they’re really there to give a contrary view—–

Senator Susan O’Keeffe

Okay.

Deputy Michael Noonan

—–so that if I come in and I tell you what I’m doing in the budget, there’s another reliable institution that can give you a different assessment.

Senator Susan O’Keeffe

But is it a view, Minister, or advice or … or an assessment? How would you—–

Deputy Michael Noonan

Well, I mean—–

Senator Susan O’Keeffe

Is it something to be disregarded?

Deputy Michael Noonan

They have some legal powers that are mandatory and, I suppose, the key one is that when we’re doing forecasts for 2016 on which we base the budget, they have to be endorsed by the Fiscal Advisory Council. And if the Fiscal Advisory Council don’t … don’t endorse them, I can’t use them for the base for a budget. Now, there’s a good relationship between forecasters in Finance and them. And John … Dr. John McHale has complimented the economic section on their forecast. But they must endorse the forecast, otherwise I can’t build the budget on the forecast that Finance produces. Now, that’s an extremely strong power … an extremely strong power and it’s mandatory.

The advice is persuasive and, obviously, no Minister wants to be at variance with the advice of the Fiscal Advisory Council to a great … to a large extent. But, when you remember that part of their mandate is to give a contrarian view … because Wright and various other people said one of the problems in Ireland was that contrarian views weren’t entertained, once that’s their mandate, it seems to be that most of the time when they do a studied … a study of Irish fiscal policy that’s promoted by the Minister, they won’t agree with it. So it depends on how they present it.

It had not been obvious to me on reading the relevant legislation that the council’s view on forecasts was as binding as the minister has confirmed it to be.

It seems to me, however, that when the head of the council said on RTE recently, if I picked him up correctly, that the most important change was that there was a set margin i.e. amount of money available under binding EA rules, he was hitting the nail on the head cf. the experience of Sweden at pages 677 to 684 of the link.

The government is now trying to make a virtue of a possibly politically damaging necessity but which is in the broader economic interest of the country. We area long way, however, from the budgetary surpluses which the author of the Moody’s report rightly considers essential as a necessary “buffer” against future negative economic events.

For the moment, at least, the government and the council are singing from the same hymn sheet with the odd bum note. Given the very narrow remit of the council relative to others, this may well allow it to achieve an enhanced reputation and a broader audience.